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investors used to collectively purchase securities while each investor retains ownership and
control of his own shares. An investment fund provides a broader selection of investment
opportunities, greater management expertise and lower investment fees than investors
might be able to obtain on their own. Types include mutual funds and hedge funds
Mutual fund: A mutual fund is an investment vehicle made up of a pool of funds collected
from many investors for the purpose of investing in securities such as stocks, bonds, money
market instruments and similar assets. One of the main advantages of mutual funds is they
give small investors access to professionally managed, diversified portfolios of equities,
bonds and other securities. Each shareholder, therefore, participates proportionally in the
gain or loss of the fund.
Pooled funds: Pooled funds are funds from many individual investors that are aggregated for
the purposes of investment, as in the case of a mutual or pension fund. Investors in pooled
fund investments benefit from economies of scale, which allow for lower trading costs per
dollar of investment, diversification and professional money management.
based on short-term movements to profit from the price movements on a shortterm stock chart.
Open-end funds are what you know as a mutual fund. They don't have a limit as to how
many shares they can issue.
You can't watch an open-end fund like you watch your stocks, because they don't trade on
the open market. At the end of each trading day, the funds reprice based on the amount of
shares bought and sold. Their price is based on the total value of the fund or the net asset
value (NAV)
closed ended They are launched through an IPO in order to raise money and then trade in
the open market just like a stock or an ETF. They only issue a set amount of shares and,
although their value is also based on the NAV, the actual price of the fund is affected
by supply and demand, allowing it to trade at prices above or below its real value.
When a new fund is in the process of being established, those in product development work
with the legal and compliance teams to make sure the investment vehicle meets all
regulatory and legal requirements. They also work closely with the marketing and sales
departments to craft the promotional material for the new investment product. (For more on
this process, read On The Record: Communications With The Public.)
The product development team also plays a role in assessing competitors' products. This
allows the team to ensure that their firm's products are adequately positioned to compete
effectively. As a result of their competitive intelligence, they will often make
recommendations when it comes to merging or eliminating funds, and setting the pricing of
funds. (Keep reading on this subject in Where do most fund managers get their market
information?)
Discount brokers are able to execute any type of trade on behalf of a client, for which they
charge a reduced commission in the range of $5 to $15 per trade. Their low fee structured is
based on volume and lower costs. They dont offer investment advice and brokers are
usually paid on salary rather than commission. Most discount brokers offer an online trading
platform which attracts a growing number of self-directed investors.